December 11, 2013 / 11:25 AM / in 4 years

Indonesia's president to weigh into mineral export confusion

JAKARTA, Dec 11 (Reuters) - Indonesia’s president will make the final decision in a furious debate over next month’s scheduled ban on the export of unprocessed metal ore, an issue that pits nationalist-minded lawmakers against officials desperate not to lose revenue.

From next month, mining companies must process their ore before shipping it overseas, in a measure that aims to boost the value of exports from Indonesia, the world’s top exporter of nickel ore, thermal coal and refined tin.

But smelting capacity is nowhere near ready, which means much of Indonesia’s output of metal ore will grind to a halt unless the processing requirements are relaxed.

And the law is kicking in just as a yawning current account deficit, exacerbated by waning global demand for commodities, is undermining investor confidence, leading to a drop this year of nearly a quarter in the rupiah’s value against the dollar.

“The president will decide it,” Trade Minister Gita Wirjawan told reporters on Wednesday, noting that Yudhoyono would make an announcement after consultations with the chief economic minister, the energy and mineral resources minister, the trade minister, the industry minister and parliament.

Lawmakers last week told the government they would not dilute the law, adopted five years ago, and it must go ahead as scheduled. Officials have been pressing for a reprieve, at least for miners that can show they have been trying to meet demands to process their ore before it is loaded on ships for export.

Mining associations have warned that an outright ban would cost Indonesia, home to the world’s second largest copper mine, billions in lost export revenue and leave thousands out of work.

But the issue of protecting national resources is a prickly one ahead of next April’s parliamentary election and the presidential election three months later.

Indonesia has been criticised by the mining industry for creating regulatory uncertainty.

Confusion over the export ban has drawn protests from small mining companies as well as major players, including U.S. giants Freeport McMoRan Copper & Gold and Newmont Mining Corp. , which now turn only about a third of their production into refined copper domestically.

With the current threshold for copper exports set at 99.9 percent purity, much of the exports of copper concentrate from the country’s top two producers could stop.

On Tuesday, the country’s second-biggest copper exporter, Newmont, said it supported the move to develop downstream mineral processing industries but argued it should not be subject to an ore export ban since it already processes its mined copper ore into copper concentrate.

“We are prepared to take other reasonable steps to support the policy,” Martiono Hadianto, chief executive of Newmont’s Indonesian unit, said in a statement, adding that the firm’s work contract guaranteed its right to export copper concentrate, and that its operations complied with the new law.

“As a result of the value added, buyers of our copper concentrate pay the same price for the copper contained in the concentrate as buyers pay for refined copper metal,” Martiono said, adding that Newmont captured 95 percent of the entire value stream in Indonesia.

The Indonesian Mining Association said the government could create a loophole to allow exports to continue by changing the minimum processing requirements for metals affected by the ban.

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